The Pay Gap Prescription

Your local pharmacy is closing the wage divide between men and women.

Ask Harvard economist Claudia Goldin how to close the pay gap between men and women, and chances are you’ll soon be talking about pharmacies. As in CVS. As in Walgreens. As in that drab, fluorescent-lit place you go to pick up some Sudafed or Diet Coke in a hurry.

Jordan Weissmann is Slate's senior business and economics correspondent.

America’s drugstore counters, you see, are secretly little altars to gender equality. In most well-paid occupations, women earn far less than men. But Goldin’s research has shown that among pharmacists, the average difference is relatively small, especially when measured hour to hour: about 5 to 7 percent. That’s one reason why Goldin—widely considered one of the country’s leading labor economists—calls pharmacy “one of the most egalitarian of all professions today.”

The reasons why female pharmacists fare so well are a bit complicated. But Goldin thinks her close study of the people who fill our prescriptions can help us draw a road map for closing much of the remaining pay gap. “The solution does not (necessarily) have to involve government intervention,” she writes in a paper scheduled to appear in the April edition of the American Economic Review. “It does not have to improve women’s bargaining skills and desire to compete. And it does not necessarily have to make men more responsible in the home (although that wouldn’t hurt).” What it does involve is making the corporate world a bit more like your corner Rite Aid.

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As President Obama likes to remind us, American women who work full time collectively make 77 cents on the dollar compared with men. That neat, memorable statistic is sometimes treated as evidence of rampant wage discrimination in the U.S. But, in truth, most of the pay gap can be explained by other factors, such as career choice. While American women are generally better-educated than men, they tend to end up in lower-paying fields (and the reasons why could take up a whole dissertation). About 76 percent of public school teachers are female, for instance, compared with just 13 percent of engineers and 6.5 percent of neurosurgeons. After adjusting for details like age, experience, occupation, and industry, Cornell economists Francine Blau and Lawrence Kahn found that women earn about 91 cents on the dollar compared with men.

Still, the fact that women gravitate to less lucrative industries does not explain all of the pay gap. Even when they work in the exact same occupations, women consistently earn less than men. It’s true in law. It’s true in accounting. It’s true in medicine. And much (though not all) of the reason why it’s true can be summed up with one word: babies.

Yes, babies, those vicious little career killers. When women start working, they earn similarly to men. But once they reach their prime years for giving birth and raising children, the divide quickly widens. And well before Anne-Marie Slaughter declared in an instantly famous 2012 Atlantic piece that women still can’t have it all, Goldin and her collaborators were using statistical regressions to carefully document the perils of motherhood for high-powered professionals. In a study of University of Chicago MBAs written with Lawrence Katz and Marianne Bertrand, Goldin found that female business school grads started off earning roughly on par with their male peers. But after 10 to 16 years, they were making 45 percent less per year.Why the yawning gap? Because the corporate world placed a huge premium on long hours—in other words, doubling your workweek would far more than double your salary—and harshly penalized any time out of the labor force. Once they became mothers, the women of Chicago Booth couldn’t keep pace with their male classmates. Many took long career breaks, seemingly because flexible schedules and part-time work were hard to come by.

In keeping with those findings, Goldin’s new paper shows that the size of the pay gap in most occupations is closely associated with how employers reward long hours. In business and finance (shown in red on the graph below), workers are richly compensated for pulling marathon workweeks, and the pay gap looks like a canyon. In tech and some health occupations (shown in green and blue below), their income is less dependent on how much time they spend at the office—a structure Goldin calls “linear pay.” In those occupations, the wage gap is less gargantuan.

Which brings us to the pharmacy business. Back in the 1960s, pharmacists tended to be self-employed. They pulled long hours managing their own stores, and, unsurprisingly, they tended to be men, or women who worked for men while earning far less. But then, as Goldin and Katz documented in a 2012 paper, the industry started to change. The chains began to take over—Rite Aid, CVS, and Walgreens helped put mom-and-pop shops out of business, while grocery stores, and eventually big-box retailers like Walmart, also got into the game. As the number of independent pharmacies dwindled, women flooded into the profession, while the hourly pay gap continued to shrink.

It shrank in part because the large national chains made pharmacies into incredibly friendly places for part-time work. More than a quarter of female pharmacists work part-time, but hour for hour, they still earn about the same as men. Which is to say, the pay is “linear.” There’s no special premium for working a 60-hour week.

According to Goldin, one of the key reasons why linear pay works is that pharmacists, although highly educated, are essentially interchangeable. Customers aren’t particularly worried about who is filling their Xanax or Lipitor prescription, so long as they’re in the hands of a professional. “All the information is there in the computer. The training is standardized,” Goldin told me.For CVS or Rite Aid, it ultimately makes just as much sense to pay two pharmacists $50,000 to work half the number of hours per year as it does to pay one pharmacist $100,000. (I would only add that, presumably, the tradeoff isn’t exactly even once benefits start getting counted—either the company or, more likely, the workers would need to get shortchanged a bit).

In fields like law and finance, workers can’t be swapped so easily without frustrating clients and costing the firm profits—and so they pay fewer workers more for long hours, which is a disadvantage to women. If those industries could change their business models in order to make their highly skilled employees more interchangeable, Goldin argues, the gender gap would shrink. Companies would be able to pay relatively more for part-time and flexible work—meaning that after having children, women would be more likely to continue in their careers, instead of cratering their future pay by leaving the working world altogether. Employers would also have less reason to pay a premium for the long hours women have trouble dedicating to their jobs. (Of course, if we could change the social expectation that women should shoulder the bulk of child care, all of this would be less of a problem to begin with.) Already, Goldin points out, industries like health care, real estate, retail banking, and brokerage have moved in this direction.

Goldin is doing no less than proposing a free-market solution to the pay gap that could evolve naturally over time. After all, what manager wouldn’t like to swap employees between projects at will without hurting his or her business? Goldin’s solution also suggests that as companies gain size and scale, they’ll become more equitable places to work by default—not just for women, but for any parent responsible for the majority of child care.

But Goldin’s idea also has its limits. For one, it only addresses one piece of the wage gap—essentially, what women earn per hour. To truly close the gender divide, Americans will have to stop treating child care as primarily a female obligation, so more women can keep working full-time.

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This is why my mother (who is a pharmacist) always wanted me to be a pharmacist. My father is also a pharmacist. And let's not confuse pharmacists with pharmacy techs. More...

It also won’t necessarily work for every profession. Pharmacists and anesthesiologists are tasked with finding a set right answer to a particular technical problem: Will this drug cause an interaction? How much sedative do I inject? Those parameters make their work relatively easy to standardize.Some routine legal and business work certainly lends itself to that treatment as well—in law, for instance, a partnerless firm called Axiom has made waves by offering low-cost corporate legal services in bulk. But some companies will always want to hire a superstar litigator to handle lawsuits. Some rich investors will always want to park their money with a hot hedge fund manager. And, for that matter, plenty of middle-class families like having a single personal finance adviser they can come back to.

And that says nothing of creative industries. It’s tough to make jobs more coglike when employees are hired for their imaginations.

“I’m not saying you can do this in everything,” Goldin told me. “I’m simply saying that where it can be done, we can see the results.” Fair enough. For now, we’ll call it an imperfect prescription.